Dividends are amounts paid out to shareholders of a company from the company's profits. We automatically prepare your dividends through your bookkeeping spreadsheet. All you need to do is print off, sign and keep hold of the quarterly dividend paperwork by clicking on the quarterly buttons on your bookkeeping spreadsheet.
The HMRC rules state that there is no personal tax or NI due on any dividend income you receive as long as your total earnings stay within the basic rate, i.e. they are less than £39,970pa (2014-15 figures).
So, if you take a tax efficient salary of £7,956pa this means that you can take gross dividends of up to £32,014pa without having to pay any personal income tax or NI at all!
If instead you were paid a salary of £39,970 (e.g. through an umbrella company) then the tax and NI would come to a whopping £9,835. This is by far the biggest advantage of going limited rather than using an umbrella company.
What happens if your company earns profits of more than £39,970 pa? In this case, you have the choice of either limiting your withdrawals to around £3,200 per month to stay within the basic rate of tax or you can withdraw more earnings and just pay tax at an effective rate of 25% on any earnings above this level. This results in even more savings as the usual higher rate tax for employees is 40%.